Overhauling Singapore’s public transport model

Minister for Transport Lui Tuck Yew recently criticised the Workers’ Party’s (WP) proposal for a not-for-profit National Transport Corporation to replace the current two listed public transport companies.

Mr Lui claimed that WP’s proposal had “serious downsides, chief amongst which commuters and taxpayers (yes, even those who don’t take public transport) are likely to end up paying more, and possibly, for a poorer level of service over time”.

He added that “it is the profit incentive of commercial enterprises that spurs efficiency and productivity improvements”.

Market failures in public transport These are simplistic and tired old arguments about the virtues of private enterprises which fail to fully appreciate the economic reality of the public transport industry in Singapore.

Firstly, taxpayers who do not take public transport already contribute to the provision of public transport in the form of taxes that pay for the construction of roads, the development of rail lines and the purchase of the first set of trains on every new MRT line.

Secondly, public transport is an industry rife with market failures which the Minister seems to ignore. The current regime where SMRT Corporation (SMRT) and SBS Transit (SBST) each provide both rail and bus services provides an illusion of competition.

The reality is that SMRT and SBST have clearly delineated areas of responsibility with no route overlaps. This makes each of them a de facto monopoly provider in their own particular areas.

Commuters do not have the freedom to switch between providers whenever they choose to, nor do we see public transport operators (PTOs) fighting to acquire and retain customers like airlines do with promotions, discounts and loyalty programmes.

The monopoly status is also reflected in the consistent high returns these companies earn. Freed from the discipline of genuine market competition, they have few incentives to raise service standards and keep prices low.

To say that shareholder discipline will create such incentives is naïve at best, and wrong at worst. Shareholders seek higher profits, not better or more affordable services. The government must examine whether a public utility should be owned and operated by what are effectively private monopolists earning monopoly rents.

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